Economic development planning

rwp Regional Economic Development Planning Structural Economic Analysis Michael Kiehl Department of Urban and Regional Economics Stefano Panebianco Research Institute for Regional and Urban Development of the Federal State of North Rhine-Westphalia (ILS NRW) L4. Structural Economic Analysis 22-11-2004: 9.30 h 10.15 11.00 11.15 13.00 h h h h Background / Data availability Basic Structural Analyses Coffee Break Exercises with MS Excel End 23-11-2004: 9.15 h 9:45 h 10.30 h 11.15 h 11.30 h 13.00 h rwp Continuation of Exercises Shift-Share-Analysis Portfolio-Analysis Coffee Break Presentation and discussion of results End Shift-Share Analysis. Introduction The Shift-Share Analysis… … is a traditional instrument of regional economic analysis (introduced by Dunn (1959), Fuchs (1959) and Zelinsky (1958) …provides a retrospective view of the causes of growth. …is based on employment figures disaggregated to economic branches ? structural economic analysis …divides a city’s / region’s growth into three components 1) total net shift (“regional factor”) 2) net proportionality shift (“structural component”) 3) net differential shift (“locational component”) rwp Shift-Share Analysis. Central hypotheses The economic structure constitutes a positive or negative „prior encumbrance“ for the economic development of an area. The economic development of a region only partly depends on the specific locational characteristics of a region. The national economic effects have to be separated analytically from the regional specifities. rwp Shift-Share Analysis. The “structural component” The structural component (net proportionality shift) displays the interregional variances in employment growth which are due to the economic structure of each region. • The structural component describes, how regional employment would have changed, if the economic structure was the only driver of change (hypothetical character). The overall economic development trend within a region usually is determined by the existence of single economic branches / industries. If growth branches prevail, a positive overall development can be expected (and vice versa). Hence, the economic structure of a region can represent either a competitive advantage or disadvantage. • • • rwp Shift-Share Analysis. The “locational component” The locational component (net differential shift) displays the inter-regional variances in employment growth which are due to the locational qualities of each region. • The locational component stands for the difference between the real employment change of a region and the hypothetical level of employment (=structural component) which would have been achieved if all economic branches of the regional at stake developed in the same way as they did at national level. The locational component stands for positive / negative locational qualities leading to a regional economic development which depart from the national development trend. The locational component comprises all regional characteristics which affect growth, e.g. agglomeration economies, infrastructure provision, human capital, resources. • • rwp Shift-Share Analysis. Two ways of calculation Subtraction Method vs. Index Method Subtraction method: no. of employees as basis for calculations; Result of the Shift-Share Analysis: (fictive) no. of employees • Advantage: Absolute figures are more easily interpreted within a region (e.g. „in the production sector, we gained 2,000 jobs more than expected“) • Disadvantage: The values of different regions cannot directly be compared. INDEX method: share of employees as basis for calculations. Result of the Shift-Share Analysis are indices (e.g. „regional factor“) • Advantage: The values of different regions ca directly be compared. • Disadvantage: The values have „no dimension“. rwp Shift-Share Analysis. The substraction method (1) Comparison of any two points in time • • calculate the (real) change in employment (t1 – t0) apply the national change rates of each economic branch to the economic branches which exist in regioni structural component (hypothetical) calculate the difference between real and hypothetical emplyoment change for each economic branch locational component • rwp Shift-Share Analysis. The substraction method (2) • • real change = no. of employees in 2003 – no. of employees in 1990 structural component (hypothetical change) = no. of empl. in regioni and economic branchj * rate of employm. change at national level in economic branchj ( /100 ) locational component = real change – hypothetical change • rwp Shift-Share Analysis. The example of the Ruhr area (1985-2002) Real change Agriculture Energy Mining Production Construction Sale Transport Credit, Assurances Business serv. Household serv. State, Org. SUM rwp Structural component -1,199 -5,275 -90,130 -64,995 -20,200 34,745 14,106 8,899 104,882 114,209 12,696 107,727 Locational component 2,093 -1,121 -7,454 -105,200 -8,166 -32,045 -2,281 -5,622 -7,680 -1,461 8,719 -160,217 894 -6396 -97,584 -170,195 -28,366 2,700 11,825 3,267 97,202 112,748 21,415 -52,490 Shift-Share Analysis. Index method (1) „regional factor“ = structural component * locational component The „regional factor“ indicates whether the region at stake performed better or worse than the national average. regional factor = employment change t1-t0 in regioni employment change t1-t0 at national level regional factor > 1 regional factor < 1 regioni performed better than the national average regioni performed better than the national average rwp Shift-Share Analysis. Index method (2) structural factor = structural factor > 1 structural factor < 1 hypothetical no. of employees in regioni at t1 real no. of employees in regioni at t1 regioni performed better than the national average regioni performed better than the national average locational factor = locational factor > 1 locational factor < 1 employment change t1-t0 in regioni employment change t1-t0 at national level regioni performed better than the national average regioni performed better than the national average rwp Shift-Share Analysis. Index method (3): The example of the Ruhr area Ruhr area Sector Sektor agriculture Landwirtschaft Energie energy Bergbau mining Verarb. Gewerbe production Bau construction Handel trade Verkehr finance Kredit, Versich. business o.s. Untern.orien.Die household o.s. Haushalt.Dienst. Staat, O.o.Erw. state, other org. Total economy Gesamtwirtschaft 1985 9.020 29.526 133.164 462.142 116.531 207.044 70.445 42.096 58.029 210.667 106.205 2002 9.914 23.130 35.580 291.947 88.165 209.744 82.270 45.363 155.231 323.415 127.620 1985-02 +9,9% -21,7% -73,3% -36,8% -24,3% +1,3% +16,8% +7,8% +167,5% +53,5% +20,2% Bund (ABL) Hypothetisch 2002 West-Germany Ruhr hypothet. 2002 1985 2002 1985-02 = Ruhr1985* WG85-02 = 1985*Bund 231.077 245.088 227.828 7.817.641 1.605.088 2.757.438 995.343 804.462 790.105 3.084.577 1.810.990 200.356 201.301 73.626 6.718.177 1.326.856 3.220.173 1.194.645 974.329 2.218.150 4.756.824 2.027.476 -13,3% -17,9% -67,7% -14,1% -17,3% +16,8% +20,0% +21,1% +180,7% +54,2% +12,0% 7.820,8 24.250,9 43.033,9 397.146,9 96.331,1 241.788,8 84.550,5 50.984,8 162.911,3 324.876,3 118.900,8 1.444.869 1.392.379 -3,6% 20.369.637 22.911.913 +12,5% 1.552.596,0 7,5% real change Tats äc hlic he Ve rände rung as index x a ls Inde in % % in rwp = structural component ** locational component = S trukturfakto r S tando rtfakto r 0,964 -3,6% = = 1,075 7,5% * "*" 0,897 -10,3% Shift-Share Analysis. Dynamic analysis 1985-2002. The Ruhr area 500.000 400.000 300.000 200.000 100.000 0 -100.000 -200.000 -300.000 -400.000 1985 1987 1989 1991 1993 1995 1997 1999 2001 3. sector – structural c. 3. sector – real develop. agriculture 2. sector – structural c. 2. sector – real develop. rwp Shift-Share Analysis. Strenghts + Shift-share analysis has been widely used by planners and economic development officials to help them understand economic performance. It is relatively easy to use and understand. The data required to perform the analyses are readily available in many countries. It allows to assess the overall role of locational vs. structural factors. + + + rwp Shift-Share Analysis. Weaknesses The shift and share components may change depending on the level of industrial detail (more detail decreased role of the locational comp.) The relevance of the economic structure has decreased since the 1960s: Today, it explains only a small portion of the regional development, as there are large development differences within economic branches (e.g. due to product differentiations). The locational component is residual comprising all locational specifities of a region – it does not tell anything about the role of single location factors. It could also stand for different forms of management within economic branches. The shift-share analysis is hardly suited for predicting the future development of a region, as the relevance or even the „direction“ of impact of the locational component may change too frequently. - - - rwp L4. Structural Economic Analysis 22-11-2004: 9.30 h 10.15 11.00 11.15 13.00 h h h h Background / Data availability Basic Structural Analyses Coffee Break Exercises with MS Excel End 23-11-2004: 9.15 h 9:45 h 10.30 h 11.15 h 11.30 h 13.00 h rwp Continuation of Exercises Shift-Share-Analysis Portfolio-Analysis Coffee Break Presentation and discussion of results End Portfolio Analysis (1) Portfolio Analysis originally a method of financial or business planning Idea: Developing a strategy to deal with threats and opportunities; By: Displaying threats and opportunities in a two-dimensional matrix Most common form: Market Share – Market Growth Portfolio rwp Market Growth „Question Marks“ Average Share „Stars“ Average Growth „Dogs“ Life Cycle „Cash Cows“ Market Share rwp Portfolio Analysis (2) – Ruhr Area rwp Portfolio Analysis (3) – Ruhr Area „Question Marks“ Average Share of total employment „Stars“ Average Employment Growth „Dogs“ „Cash Cows“ rwp Portfolio Analysis (4) – Ruhr Area - standardized by national average - rwp Portfolio Analysis (5) – Ruhr Area - Relativ zum Bundesdurchschnitt „Question Marks“ Durchschnittl. Anteil a.d. Gesamt-BS „Stars“ Durchschnittl. BS-Wachstum „Dogs“ „Cash Cows“ rwp Portfolio Analysis (6) Interpretation Question Marks Stars Cash Cows Dogs Labour Market low but positive effects high demand low demand dismissal/ suspension of staff deInvestments Investment new investments/ capacity investments low quantities but many buyers investment for rationalisation high demand but few buyers replacement investments Real estate demand low demand brownfields Quelle: Bonny 1994, S. 182 rwp